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$A bounces back after capex data

Jason Cadden

The Australian dollar is more than half a US cent higher after it bounced back on the release of business investment figures.

At 1700 AEDT on Thursday, the local unit was trading at 102.76 US cents, up from 102.16 cents on Wednesday.

On Thursday morning, The Australian Bureau of Statistics said capital expenditure (capex) in the December quarter fell 1.2 per cent, which was worse than expectations of a one per cent rise.

However, expected projections for business investment showed that mining investment will still be strong for the current financial year and the next.

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Easy Forex senior currency dealer Francisco Solar said the Australian dollar initially fell to 101.92 US cents after the data was released but then bounced back by almost one US cent by the early afternoon.

"There was a knee-jerk reaction, but at the end of the day it seems that whenever the Aussie is a little bit cheap, the buying support is amazing," he said.

"So anytime the Aussie is sold off on a local data event for example, it's just an opportunity to buy more Aussie dollars."

Mr Solar said Australia's interest rate advantage still gave the Australian dollar good support.

Many developed nation's central banks have their interest rates at, or near, zero per cent, while the Reserve Bank of Australia's cash rate stands at three per cent.

He said Standard & Poor's stripping the UK of its triple A credit rating was another factor that still helps the Australian dollar.

Mr Solar said any the market would be interested in any news from Italy about the formation of a government after its elections ended in deadlock.

At 1700 AEDT, the Australian dollar was at 94.92 Japanese yen, up from Wednesday's close of 93.71 yen, and at 78.17 euro cents, almost level with its previous local close of 78.18 euro cents.

Meanwhile, the Australian bond market was weaker.

ANZ head of interest rate research Tony Morriss said the capex figures meant that another interest rate cut by the Reserve Bank of Australia has become less likely.

"The market's initial response to the capital expenditure data was for a small rally because the quarterly numbers were a little bit weak.

"But looking at the first estimate for investment going into 2013/14 shows that mining investment will be strong and allow a bit more time for the focus of growth to go from the mining to the non-mining sectors," he said.

At 1630 AEDT on Thursday, the March 10-year bond futures contract was trading at 96.680 (implying a yield of 3.320 per cent), down from 96.690 (3.310 per cent) on Wednesday.

The March three-year bond futures contract was at 97.260 (2.740 per cent), down from 97.290 (2.710 per cent).